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Energy -- the heart of the climate challenge (9 November 2006)



Climate change which threatens the habitability of the entire Earth has its main source in the ways in which people meet their energy needs. There could be no greater challenge to entrepreneurship and corporate social responsibility.

Remarks by Maurice F. Strong at 2006 Global Forum on Entrepreneurship Great Hall of the People, Beijing, China


I am particularly pleased and honoured by this opportunity to join this important and timely Forum. I will focus primarily on one of the principal challenges confronting China and the world community today, in which entrepreneurship, social responsibility and financial innovation play critically important roles in addressing the risks to the human future posed by the prospects of climate change and our response to it.

Energy - its production, transportation, and use is at the very heart of this challenge, affecting virtually every sector of the economy. Although China's energy consumption on a per capita basis has declined significantly, it continues to consume some 10 times as much per unit of GDP as Japan and 3 times that of the United States. This imposes a burden on both the economy and the environment, which is simply not sustainable, quite apart from its immense costs in terms of human health. It is a gap that China must bridge.

I can think of no more important challenge to entrepreneurship and corporate social responsibility in China. Improving efficiency of the economy is a win-win opportunity, both for corporations and the environment. If I may cite from my own experience when I headed North America's largest electric power utility a major program of energy efficiency enabled the company to move from the largest loss in its history and spiralling rates which were driving its customers away or out of business to its largest profit and stable rates. The development of new and improved technologies is one of the principal means of reducing emissions from existing sources and developing alternative sources that are more environmentally benign. The need for these provides a powerful incentive for innovation to realize the benefits that this can produce for entrepreneurs and for society.

Expanding market

China is becoming the world's most rapidly expanding market for motor vehicles, and potentially the largest manufacturer and exporter. It also is building on a scale without precedent in the experience of others factories, offices, housing, commercial centres and energy-dependent industries. The Chinese people cannot be denied the benefits of such growth, which will still leave China on a per capita basis well behind the peoples of the more traditional developed countries in standards of living as measured by GDP, and its contribution to global environmental deterioration, notably the risks of climate change.

It is in China's interest to ensure that it make all possible efforts to reduce the environmental impacts of this growth and move onto a pathway that is sustainable. Its own experts have cautioned that its present mode of development, which largely follows the example of the more developed countries, is not sustainable. The future prospects for a sustainable way of life on Earth will be influenced, perhaps decisively by what China does, or fails to do. We can therefore draw encouragement from the commitment of China's leaders to a people-centred harmonious sustainable development pathway guided by science.

As one who has had the privilege of being closely associated with the development of the environment and sustainable development movement in China for more than 30 years, I am convinced that this is not merely an option for China, but an imperative. China's rapid growth and its dependence on fossil fuels for most of its energy supplies have made it one of the principal sources of greenhouse gas emissions. And while they will remain at a relatively modest level in' per capita terms, overall, China is expected soon to succeed the United States in the dubious honour of becoming their principal source. China's scientists caution that it is also one of the countries that will suffer most from climate change. Shanghai and other major population centres will be endangered by rising sea levels. China's agriculture and its water supplies are also highly vulnerable to changes in weather and rainfall patterns on which they are so dependent.

Carbon trading programme

China is expected to account for 26% of new global emissions by 2030, more than the increase its emissions by all OECD countries combined. While China has not been required to accept targets for reducing its emissions, it has been a very constructive participant in the Climate Change Convention and in implementing its Kyoto Protocol despite its repudiation by the United States. One of the key provisions of this protocol establishes a Clean Development Mechanism (CDM) with which you will all be familiar. China has recently set out the conditions under which CDM's can be allocated although emissions trading has not yet been fully established, an informal market has already developed. China is likely to become the principal source of such credits and one of its main beneficiaries.

There is now a movement to establish a carbon trading program in China. The government of China is in the process of considering how it will regulate emissions credits, including the prospect of establishing a China Climate Exchange. Its decisions will have a profound effect on the direction which China takes to reduce emissions of carbon dioxide and other greenhouse gases. China's transition to a socialist market economy makes it likely that it will use market mechanisms to achieve its goals, including emissions trading. In the meantime, some extremely important transactions are already occurring which enable China's agricultural sector to benefit from its capacities to prevent and absorb emissions. The Ministry of Science and Technology, in cooperation with the United Nations Development Program, has made significant progress towards development of a program in which CDM credits can provide resources for the relief of poverty and the achievement of the UN's Millennium Development Goals.

Of course, emissions trading is only one of the measures that can contribute to reducing emissions of greenhouse gases on a cost-effective basis. Critics contend that it provides an incentive to pollute and will enable polluters in the more developed countries to buy their way out of their obligations by transferring their emissions to developing countries. Or that it can enable speculators to benefit disproportionately at the expense of those who actually effect the reductions.

Emission trading

Enlightened entrepreneurship can provide business with a whole new generation of opportunities in meeting this challenge. Johnston Controls General Electric is the largest but not the only one of the many companies now seeing sustainable development as the most promising pathway for their own corporate future. A particularly important manifestation of entrepreneurship is the establishment of the Chicago Climate Exchange by Professor Richard Sandor. It has become a world leader in trading of emissions credits by voluntary programs and now has more than 200 members, despite the fact that the US government has repudiated participation in the Kyoto Protocol of the Climate Change Convention. Its voluntary character is also a manifestation of corporate social responsibility.

Emissions trading have enabled substantial reductions in sulphur dioxide (S02) emissions to be effected on a cost-effective basis. Also pioneered by Richard Sandor, there was initially much discussion that reducing sulphur dioxide in the United States would be too costly for the economy. What happened in fact was that S02 emissions were reduced from 17.3 million tons in 1980 to 10.3 million tons in 2004. It is estimated that this is also instrumental in reducing the estimated costs of the US acid rain program in 2010 to some 3 billion dollars to produce an estimated annual benefit of 122 billion dollars. China's S02 emissions are more than double those of the United States, and an effective sulphur dioxide trading program here in China would seem to be highly desirable.

 

The carbon market globally, and in China, dwarfs the US sulphur dioxide example. The immense potential of the carbon market can be appreciated by the knowledge that in the United States, the potential carbon "crop" will exceed the total value of its corn, wheat, and soybean production. In 2005, the carbon "crop" in the European Union had already surpassed the value of these U.S. grain crops.

China's carbon trading program must, of course, meet the distinctive needs and character of China, and be controlled and run by Chinese. I am pleased to say that the Chicago Climate Exchange has offered to cooperate in developing its Chinese counterpart and to help customize a trading solution for Chinese requirements. Such an entity would be a key center of the network of climate exchanges now being developed by CCX throughout the world.

Economic advantages

The recent report of the British economist Sir Nicholas Stem made a compelling case for the economic advantages of immediate and concerted action to avert climate change and the enormous costs of delay. He underscored the advantages of emissions trading in reducing the ominous threat of climate change to the future of life on Earth as we know it.

China's stunning economic growth, moving it to the front ranks of the world economies, has been accompanied by a high sense of responsibility to developing countries, and particularly the poorest of these which look to China as a role model. The China-Africa Summit here has dramatically manifested the importance of this relationship. The CDM offers developing countries the prospect of obtaining substantial new resource flows, though care must be taken both by them and the international community not to allow this to make them pollution havens that more developed countries can use to buy their way out of their own emissions problems.

In past times, changes occurred over much longer periods of time which enabled societies to adjust to them. Their impacts were largely confined to their own localities and regions. But today, the changes which are determining the conditions of life and the future prospects of people everywhere are occurring within a global framework in which human activities, wherever they occur, are inextricably linked to a system of cause and effect in which their sources are often widely separated both in place and in time. These phenomena know no boundaries. Thus, climate change which threatens the habitability of the entire Earth has its main source in the ways in which people meet their energy needs. There could be no greater challenge to entrepreneurship and corporate social responsibility.